OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

Japan’s Challenging Debt Dynamics

This working paper presents the background and the details of the simulations behind Box 1.4 of the
May 2013 OECD Economic Outlook. A small simulation model is used to evaluate the contribution that
the three pillars of the government’s strategy – fiscal consolidation, growth-boosting structural reforms and
higher inflation – could make to reversing the rise in Japan’s public debt ratio, currently about 230% of
GDP. The findings indicate that fiscal consolidation amounting to around 10 percentage points of GDP is
necessary by 2020 to eliminate the primary deficit, as targeted in the current medium-term fiscal strategy.
With moderately higher growth coming from increased female labour force participation and higher
productivity growth, as well as inflation gradually rising to 2% thanks to unconventional monetary policy
measures, the debt ratio would likely be put on a resolute downward trajectory by the end of this decade,
although it is likely to remain around 200% of GDP in 2035.


Keywords: projection, simulation, arrow, fiscal, budget, growth, reform, debt, consolidation, Japan, deficit, inflation

H68: Public Economics / National Budget, Deficit, and Debt / Forecasts of Budgets, Deficits, and Debt;
E63: Macroeconomics and Monetary Economics / Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook / Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy